Local companies hopeful about tax cuts, but delay bonuses

NEWARK – The federal tax cuts approved by Congress and the president late last year have increased business optimism, but not simplified business decisions, according to a local expert.

Crystal Kent, a partner with Wilson, Shannon and Snow, in Newark, said many local businesses are waiting to see the impact before they make decisions on investment, expansion, hiring or wage increases.

“For the most part, they understand they’re getting some tax breaks,” Kent said. “Not quite sure the impact. Smaller companies have to see how all this plays out. It’s not a clear calculation. It’s going to depend on the type of entity they are.”

The reduction in the highest corporate tax rate from 35 percent to 21 percent affects businesses that are C corporations, which are taxed separately from its owners.

However, most businesses in Licking County are limited liability corporations, an ownership structure not taxed as a separate business entity, that limits the principals’ personal liability, Kent said.

The question for limited liability corporations is should they switch to a C corporation to take advantage of the tax rates?

“There’s a lot of different factors to consider,” Kent said. “A lot of rules with the business deductions. It’s not simplistic. The tax code is not simplified. It’s probably more complex.”

For a limited liability corporation, business profits and losses pass through to each member, who reports it on their personal federal tax returns. The individual tax cuts are about 3 percent for all income categories.

A limited liability corporation benefits from a 20 percent qualified business deduction, and the lower personal tax rates.

Kent said the benefits of the tax reduction are clearer for C corporations, but they are double-taxed -- on earnings and on dividends.

And, a C corporation making under $50,000, would see its tax rate increase from 15 percent to 21 percent, Kent said.

Lowe’s announced it is giving more than 260,000 hourly employees bonuses of up to $1,000 and will expand benefits packages.

But, most of the smaller, local limited liability companies have not made those decisions yet.

“That’s just not the client we deal with,” Kent said. “I hope that’s what we see. A lot of clients haven’t discussed that with me yet.

“I don’t think that conversation (on bonuses) has happened. Our clients are maybe thinking about reinvesting into the business and growing the business.”

Darlene Baker, a partner at Baker, Baker and Haas, in Newark, agreed that it’s still early for decisions on bonuses and raises.

“The smaller ones will wait,” Baker said. “Small businesses will not be able to do all of that, I wouldn’t think.

“It’s all so new. We’ll have to give it a little time and see how it’s going to impact people.”

Pataskala Area Chamber of Commerce President Brian Elder said the change in the federal personal exemption and the reduction in the corporate tax rate should be good news for business.

“More money in people’s pockets and bank accounts and more capital for businesses will lead to a positive outlook for 2018,” Elder said.

“When businesses have more capital, they invest, and investing means expanding their business, hiring another employee, or maybe paying people more.”